Things to watch out for when taking loan against property

Ruben Onsu

Businesspersons commonly use loan against property to meet their cash flow requirement. Mortgaging an asset like property helps them raise a big loan at lower rates. Some salaried individuals use this product to meet large expenses such as children’s wedding or their education. It is a secured loan that lenders […]

Businesspersons commonly use loan against property to meet their cash flow requirement. Mortgaging an asset like property helps them raise a big loan at lower rates. Some salaried individuals use this product to meet large expenses such as children’s wedding or their education.

It is a secured loan that lenders give against residential or commercial property. They include a house, office, or a shop. The borrower should be the property owner, and the title should be clear.

Lenders do evaluate your creditworthiness before giving a loan against property.

Most lenders, typically, give a loan equal to 50% of the property value. Before covid-19, many non-banking finance companies (NBFCs) were aggressive. They valued the property higher than the market rates to offer higher loans to borrowers.

Since the pandemic, however, most lenders are slow in giving loan against property. According to data from Paisabazaaar.com, the State Bank of India doesn’t offer LAP for business purposes.

Before taking a loan, always compare rates. In most cases, you would find that banks’ rates are better than NBFCs’. However, the latter is more flexible.

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Comparing rates

When taking a loan, always opt for a lower tenure, as it saves the total interest outgo. LAP also takes time for disbursement. The lender must determine your property value before deciding the loan amount.

Some borrowers tend to over-leverage themselves as they get a higher amount in LAP. Avoid it. Borrow based on your requirement.

Business owners can also get a tax deduction on the interest portion of the loan.

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